DCIT Vs M/s Lexicon Auto Ltd. (ITAT KOLKATA)
AO cannot make disallowance on ad hoc basis without pointing out any defect / error in submission of assessee
It is settled law that the disallowance on account of ad hoc basis is not permissible under the provision of the Act. If the AO is not satisfied with the submission of assessee then he has to make the disallowance after making specific reference to such documents / vouchers. AO cannot just make the disallowance on ad hoc basis without pointing out any defect / error in the submission of assessee. In this connection, we also rely in the order of Co-ordinate Bench of ITAT Kolkata in the case of Animesh Sadhu Vs. ACIT in ITA 11 /Kol/20 13 Dated 12.11.2014. The relevant extract is reproduced below.:-
“8. We have considered the rival submissions. A perusal of the assessment order shows that the Assessing Officer has disallowed 20% of the expenses on estimate basis on the ground that no independent verification to be made to find out the authenticity of the expenses. Ld. CIT(Appeals) has reduced the same on the same ground. However, we are of the view that no estimated disallowance scan be made for inability to make independent verification. If any specific expenditure is unverifiable or is un-vouched, then such specific expenditure is disallowable. Her no such specific identification has been done. In these circumstances, we are of the view that the estimated disallowance as confirmed by the ld. CIT(Appeals) is unsustainable. Consequently the same stands deleted. In the result, Grounds No. 2 & 3 of the assessee’s appeal stand allowed.”
It was also observed that the entire amount of repairing charges was deducted by TML and the complete addresses of TML was in the possession of AO during the assessment proceedings, in fact, AO was not satisfied with the submission then he should have been sought clarification from TML by issuing notice u/s 133(6) of the Act but we note that AO failed to do so. Therefore we find no reason to interfere with the finding arrived by the Ld. CIT(A). Under the circumstances, this ground of Revenue’s appeal is dismissed.
Employee/ Employer Contribution to PF deposited within Due Date of furnishing Income Tax Return can’t be Disallowed
The Hon’ble Karnataka High Court, in the case of Essae Teraoka (P.) Ltd. v. Dy. CIT [2014] 366 ITR 408/222 Taxman 170 (Mag.)/43 taxmann.com 33 took the view that the word ‘contribution’ occurring in section 43B of the Act would include employees’ contribution to PF in the light of the definition of the word contribution as per the provisions of section 2(c) of the PF Act. As per the said section, contribution would mean both employer’s contribution and employees’ contribution. Accordingly, it was held that the provisions of section 43B of the Act allowing deduction for payment made before the due date of filing of Income-tax return cannot be ignored. Similarly, the ITAT Hyderabad Tribunal in the case of Tetra Soft (India) (P) Ltd. v. ACIT [2015] 70 SOT 66/6 1 taxmann.com 299 held that when assessee remitted employees’ contribution to PF within due date of filing return of income u/s 139(1) of the Act, amount of employees’ contribution to PF cannot be disallowed. Similar view was upheld by the Chennai bench of the ITAT, in the case of Asstt. CIT v. Farida Shoes (P.) Ltd. [2016] 46 CCH 29. The coordinate bench held that if assessee had not deposited employees’ contribution towards provident fund up to the due date as prescribed under relevant statute, but before due date of filing of return no disallowance could be made in view of the provisions of section 43B of the Act. In the case of CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] 366 ITR 163 (Raj.), the Hon’ble High Court of Rajasthan, after referring to the apex court decision in the case of CIT v. Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416 & CIT v. Vinay Cement Ltd. [2007]2 13CTR 268 (SC) held that the deductions should be allowed for the payment of employees’ contribution made before the due date of filing of return. Similarly, in the case of CIT v. State Bank of Bikaner, the Hon’ble Rajasthan High Court held that contribution paid after the due date under the respective Act, but before filing the return of income u/s 139(1) of the Act cannot be disallowed u/s 43B of the Act and or u/s 36(1)(va) of the Act.
Considering the facts and circumstances of this case and also following the judicial precedents as discussed above, we are of the view that there is no distinction between employees’ and employer contribution to PF, and if the total contribution is deposited on or before the due date of furnishing return of income u/s 139(1) of the Act, then no disallowance can be made towards employees’ contribution to provident fund.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-1, Kolkata dated 05.04.2016. Assessment was framed by DCIT, Circle-1, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.12.2010 for assessment year 2007-08. The grounds raised by the Revenue per its appeal are as under:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.81,51, 702/- based upon the documentary evidence produced for the first time before the CIT, which was never cross examined by the Assessing Officer.
2. Whether on the facts and din the circumstances of the case and in law, the CIT(A) has erred in deleting the addition of Rs.9,93,901/- based upon assessee’s reconciliation which was not reconciled before the AO.
3. Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in deleting the disallowance of Rs.2,08,115/- relying upon the case law, and overlooking the fact that the assessee company failed to deposit the employee’s contribution to PF / ESI within the due date provided in the IT Act.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 6,73,765/- based upon the documentary evidence produced for the first time before the CIT(A), which was never produced before the Assessing Officer.
5. The Revenue shall crave for adding or altering any ground on or before the date of hearing.”
Shri Saurabh Kumar, Ld. Departmental Representative appeared on behalf of Revenue and Shri Arvind Agrawal, Ld. Advocate appeared on behalf of assessee.
2. The facts of the case are that assessee is a limited company and engaged in business of purchase & sale of vehicle manufactured by Tata Motors Ltd. (TML for short) and spare parts including accessories. The assessee is also maintaining shop for the repairing and services of vehicle. The assessee is also having an agreement with TML for procuring the business on hire-purchase basis as well as subsequent collection of installments on behalf of TML.
3. First issue raised by Revenue in ground No.1 is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹8 1,51,702/- on the basis of additional evidence which was accepted in contravention to the provision of Rule 46A of the Income Tax Rules, 1962.
4. The assessee was entitled to 1% incentive remuneration from TML on the basis of monthly collection made by it on behalf of said company. The assessee has shown incentive remuneration for ₹5 49,815/- only whereas Form 26AS was reflecting the incentive remuneration of ₹87,01,516/- only. Thus, there was difference of ₹8 1,51,702/- as observed by the AO. On question by the AO about the aforesaid mismatch, the assessee submitted that as per the agreement with TML, there was a penalty clause of 15% of the finance amount to be levied on the assessee in the event of non-recovery of hire charges amount. The assessee also submitted that besides 15% penalty there was a clause for the penalty @ 100% of finance amount if the party fails to pay single installment to TML and if the party fails to register the vehicle showing hypothecation clause of TML.
5. In view of the above, assessee submitted that an amount of ₹81,51,702/- has been deducted by TML therefore the same was not shown as income in its income tax return. The assessee in support of its claim also field the copy of reconciliation statement between income shown by assessee vis-а-vis amount shown in Form 26AS. However, the AO disregarded the contention of assessee on the ground that
i) The amount recovered the finance amount from the customer is not
ii) The assessee also failed to furnish the party-wise details which have defaulted in the payment of installment financed by TML.
iii) No detail has been submitted by assessee regarding the subsequent recovery from the customers.
iv) There is no detail filed by the assessee with regard to the parties from whom the vehicles financed by TML were recovered.
In view of above, AO made the disallowance of ₹8 1,51,702/- and added to the total income of assessee.
6. Aggrieved, assessee preferred an appeal before Ld CIT(A). The assessee before Ld. CIT(A) submitted that the amount of ₹8 1,51,702/- was duly debited by TML by way of showing the debit note. Thus, the liability was crystallized in the year under consideration. Therefore, the incentive remuneration net of amount deducted by TML was shown in the books of account. The assessee in support of its claim also filed the copy of ledger along with copy of journal voucher with details break up and statement issued by TML.
Accordingly, the Ld. CIT(A) after considering the submissions of assessee deleted the addition made by AO by observing as under:-
“After careful consideration, it is found that the AO has disallowed the entire amount of Rs.8151 702/- which was claimed as deduction towards dealers liability on the ground that the liability to collect / recover the amount from customers was not ascertainable; party-wise details of amount defaulted and subsequent recovery from customer was not verifiable and that the actual liability was not ascertainable and could not the said to be crystallized during the previous year.In this regard, it is found that the AO has not confronted any specific instances or quantified the amount of alleged “subsequent recovery from customers” and the addition was merely base upon surmises and rejection of appellants submission made during the assessment s proceedings. In view of the totality of the facts of the case and considering that the impugned amount of Rs.8151 702/- representing dealers liability was based upon debit notes issued by M/s Tata Motors Ltd. as per terms of the agreement, which leads to the inference that s claimed by the appellant the liability has actually crystallized during the relevant assessment year. Therefore, the addition of the entire amount of Rs.8151 702/- made by the AO is found to be not justified. The AO is directed to delete the addition. This ground is allowed.”
The Revenue, being aggrieved, is in appeal before us.
